Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Q3 2022 Earnings Presentation
46 slides from Redwood Trust's earnings presentation, Oct 27, 2022
Slide 1: Q3 2022 Redwood Review
Q3 2022 Redwood Review October 27, 2022 1
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements, including statements regarding our 2022 forward outlook, statements related to available and potential sources of liquidity, estimates of upside and potential earnings in our investment portfolio from embedded discount
Slide 3: Redwood's mission and differentiators
Redwood’s mission is to help make quality housing, whether rented or owned, accessible to all American households OUR DIFFERENTIATORS 28-Year Track Record of Control Credit through Strong Performance Disciplined Underwriting and Earnings Generation Diversified Product Set Ability to Organically with
Slide 4: Redwood Operates Across Three Complementary Business Lines
Redwood Operates Across Three Complementary Business Lines Redwood’s business model is geared toward providing strategic capital for sustainable innovation in housing finance Residential Business Purpose Investment Mortgage Banking Mortgage Banking Portfolio Market leading non-Agency Leading direct
Slide 5: Q3'22 Financial Performance
Q3’22 Financial Performance Earnings Per Share GAAP Book Value Common Dividend GAAP EPS EAD Per Share(1) $10.78 $0.23 $0.23 (Diluted) (Basic) $10.18 $0.16 $(0.44) $(0.85) Q2'22 Q3'22 In Q3’22, $(0.50) per ($0.11) Q2'22 Q3'22 share was from unrealized fair value Q3’22 Total Economic Return: 16.0% Ind
Slide 6: Summary of Q3'22 Market Drivers and Performance
Summary of Q3’22 Market Drivers and Performance We are positioned defensively heading into Q4’22 as uncertainty clouds economic and financial market conditions Q3’22 Market Concerns Redwood Positioning 30 Year Mortgage Rate ▪ Sustained volatility in 2022 ▪ Intentionally pulled back on 6.70% ▪ Low li
Slide 7: Q3'22 Business Performance
Q3’22 Business Performance ▪ Unrestricted cash and cash equivalents of $297 million at September 30, 2022 represented over 60% of marginable debt(1) Financing & ▪ Repurchased ~$24 million of common stock, resulting in $0.12 per share of book Capital value accretion in Q3’22 ▪ $3.8 billion of excess
Slide 8: Q3'22 Corporate Highlights
Q3’22 Corporate Highlights Share Repurchase Strategic Acquisition Repurchased $24 Million of Common Announced and Closed Acquisition of Stock (3.4mm shares) Riverbend Lending, a Leading Single Asset Bridge Lender ✓ Repurchased common stock at accretive levels; ~$100 million of capacity ✓ Acquisition
Slide 9: Strong Capital Position Focused on Value Creation
Strong Capital Position Focused on Value Creation We have a diverse set of organic and third-party opportunities where we believe we can deploy capital accretively in today’s markets Capital Deployment Opportunities Q3’22 Capital Deployed by Type P Organic Investments Investments created and underwr
Slide 10: We Believe Our Capital Structure Represents Compelling Value
We Believe Our Capital Structure Represents Compelling Value At current levels, we view buying back shares of our common stock as a highly accretive use of capital ▪ Our recent common equity trading levels represent the largest prolonged discount to book value the Company has witnessed during its 28
Slide 11: Sources of Liquidity
Sources of Liquidity Our unrestricted cash and other sources of liquidity provide sufficient funding to cover opportunistic capital deployment and upcoming corporate debt maturities ▪ Redwood maintains a highly efficient and liquid balance sheet with $297 million in unrestricted cash at September 30
Slide 12: Conservative Leverage Profile
Conservative Leverage Profile Redwood has consistently maintained a conservative leverage posture across our operating businesses and investment portfolio ▪ We maintain a conservative leverage posture ▪ While leverage in our mortgage banking businesses is higher than in our Investment Portfolio, we
Slide 13: Funding by Business
Funding by Business Across our business lines and investment portfolio, we have significant excess financing capacity and low exposure to marginable debt(1) Investment Residential Business Purpose Portfolio Mortgage Banking Mortgage Banking $2.2 billion of debt $0.6 billion of debt $0.3 billion of d
Slide 14: Investment Portfolio & Operating Businesses
Investment Portfolio & Operating Businesses 14
Slide 15: Investment Portfolio
Investment Portfolio Credit performance remains strong across our portfolio of investments Investment Portfolio by Quarterly Performance Economic Investments(2) ▪ Q3’22 market value changes in the portfolio were $3.6 billion Housing Credit Investments primarily driven by macro market conditions that
Slide 16: Additional Drivers of Potential Long-Term Book Value Upside
We See Additional Drivers of Potential Long-Term Book Value Upside in our Securities Portfolio Potential Upside to Book Value $458mm of Net Portfolio Discount to Par(1) $16.00 $4.05 Third-Party Our ability to realize Book Value Per Share CAFL Securities $12.00 this potential book Securities 9% $10.1
Slide 17: Outlook for Investment Portfolio
Outlook for Investment Portfolio Our portfolio is positioned for a potential slowdown in HPA ▪ During the third quarter, our investment portfolio continued to demonstrate strong performance ▪ Our investment portfolio strategy is based on our outlook for housing credit and we primarily target investm
Slide 18: Investment Portfolio - SLST 2018-2
Investment Portfolio - SLST 2018-2 Our SLST 2018-2 investment serves as an example of the strong and stable underlying credit performance of our RPL investments SLST 2018-2 Summary Stable Delinquency Levels (% 90+ DQ) ▪ Our SLST 2018-2 investment, which represents ~50% Overall delinquencies in the i
Slide 19: Investment Portfolio - BPL Bridge Loans
Investment Portfolio - BPL Bridge Loans Our bridge loan portfolio is predominantly comprised of loans that we originate ourselves, in compliance with strict underwriting guidelines Summary of our Bridge Portfolio(2) ▪ We continue to deploy capital into Strategies Loan Geography (Top 10) organically
Slide 20: Investment Portfolio - Home Equity Investments (HEI)
Investment Portfolio - Home Equity Investments (“HEI”) Over the last few years, we have steadily established our investment in HEI based on our long-term thesis on housing ▪ HEIs are an effective and attractive option for Redwood’s Investments in HEI homeowners seeking to access the equity in their
Slide 21: Business Purpose Mortgage Banking
Business Purpose Mortgage Banking We have seen continued steady demand for our bridge products, while SFR demand has waned amidst higher rates Quarterly Highlights ▪ CoreVest funded $570 million of loans in Q3’22 (83% bridge / 17% SFR) ▪ Bridge demand remains elevated (driven by multi-family product
Slide 22: Business Purpose Lending Market Opportunity
Business Purpose Lending Market Opportunity Current dynamics in the housing market provide continued tailwinds to support growth in Business Purpose Lending and demand for CoreVest’s diverse product suite Durability of BPL Demand Amidst Higher Rates & Recessionary Markets P BPL is an attractive and
Slide 23: Residential Mortgage Banking
Residential Mortgage Banking As volatility persists, Redwood has maintained leadership as a partner of choice to both our loan sellers and buyers / investors Quarterly Highlights Quarterly Volume ($bn) ▪ Positioned conservatively given market backdrop $4.7 ▪ $461 million of quarterly locks, down 54%
Slide 24: Industry-Leading Distribution Platform is a Clear Differentiator
Industry-Leading Distribution Platform is a Clear Differentiator We were able to successfully distribute our inventory through securitizations and whole loan sales in Q3’22 despite challenged market conditions Redwood Distribution Overview Residential Mortgage Banking (Sequoia) ▪ Industry leader for
Slide 25: RWT Horizons
RWT Invests primarily in early-stage companies that drive innovation in financial and HORIZONS real estate technology Horizons Opportunity Thesis P Enhance efficiency and P Early-stage companies with P Partnerships drive growth and P Alignment with Redwood’s scale in Redwood opportunity for technolo
Slide 26: Financial Results
Financial Results 26
Slide 27: Detailed Endnotes are included at the end of this presentation.
Detailed Endnotes are included at the end of this presentation. 27
Slide 28: Detailed Endnotes are included at the end of this presentation, including details regarding our
Detailed Endnotes are included at the end of this presentation, including details regarding our non-GAAP measures. 28
Slide 29: Detailed Endnotes are included at the end of this presentation, including details regarding our
Detailed Endnotes are included at the end of this presentation, including details regarding our non-GAAP measures. 29
Slide 30: Detailed Endnotes are included at the end of this presentation.
(1) Detailed Endnotes are included at the end of this presentation. 30
Slide 31: Detailed Endnotes are included at the end of this presentation.
Detailed Endnotes are included at the end of this presentation. 31
Slide 32: Detailed Endnotes are included at the end of this presentation, including details regarding our
Detailed Endnotes are included at the end of this presentation, including details regarding our non-GAAP measures. 32
Slide 33: Detailed Endnotes are included at the end of this presentation, including details regarding our
Detailed Endnotes are included at the end of this presentation, including details regarding our non-GAAP measures. 33
Slide 34: Detailed Endnotes are included at the end of this presentation.
Detailed Endnotes are included at the end of this presentation. 34
Slide 35: Detailed Endnotes are included at the end of this presentation.
Detailed Endnotes are included at the end of this presentation. 35
Slide 36: Detailed Endnotes are included at the end of this presentation.
Detailed Endnotes are included at the end of this presentation. 36
Slide 37: Endnotes
Endnotes 37
Slide 38: Non-GAAP Measures
Non-GAAP Measures Earnings Available for Distribution (“EAD”) and EAD Return on Capital (“EAD ROE”) EAD and EAD ROE are non-GAAP measures derived from GAAP Net income and GAAP return on equity (“GAAP ROE”), respectively. EAD is defined as: GAAP net income (loss) adjusted to (i) exclude investment fa
Slide 39: Non-GAAP Measures
Non-GAAP Measures EAD Net Contribution and EAD Net Contribution Return on Capital EAD Net Contribution and EAD Net Contribution Return on Capital are non-GAAP measures derived from GAAP Net Contribution and Return on Capital, respectively. EAD Net Contribution presents a measure of the profitability
Slide 40: Non-GAAP Measures
Non-GAAP Measures Economic Balance Sheet Our economic balance sheet is a non-GAAP measure derived from our GAAP balance sheet and represents our GAAP balance sheet adjusted to exclude balances from certain consolidated variable interest entities and include the economic interests we legally own in t
Slide 41: Endnotes
Endnotes Slide 4 (Redwood Operates Across Three Complementary Business Slide 5 (Q3’22 Financial Performance) Lines) Source: Company financial data as of September 30, 2022 unless otherwise noted. Market data per Bloomberg as of September 30, 2022. Source: Company financial data as of September 30,
Slide 42: Endnotes
Endnotes Slide 7 (Q3’22 Business Performance) Slide 11 (Sources of Liquidity) Source: Company financial data as of September 30, 2022. Source: Company financial data as of September 30, 2022 unless otherwise 1. Non-marginable debt and marginable debt refers to whether such debt noted. is subject to
Slide 43: Endnotes
Endnotes Slide 15 (Investment Portfolio) Slide 18 (Investment Portfolio - SLST 2018-2) Source: Company financial data as of September 30, 2022 unless otherwise Source: Company financial data as of September 30, 2022 unless otherwise noted. noted. 1. The projected forward economic yield is calculat
Slide 44: Endnotes
Endnotes Slide 23 (Residential Mortgage Banking) Slide 28 (Appendix: Consolidated Balance Sheet), Continued Source: Company financial data as of September 30, 2022 unless otherwise 3. Our Economic Balance Sheet represents a non-GAAP measure. See the noted. “Non-GAAP Measures” section at the beginnin
Slide 45: Endnotes
Endnotes Slide 31 (Appendix: Capital Allocation Summary) Slide 33 (Appendix: Investment Portfolio Key Results) 1. Amounts of assets in our investment portfolio, as presented in this table, 1. Adjusted Net Contribution and Adjusted Return on Capital are non-GAAP represent our economic investments (in
Slide 46: Endnotes
Endnotes Slide 35 (Appendix: Investment Portfolio Credit Characteristics) Slide 36 (Appendix: Recourse Debt Balances) 1. Underlying loan performance information provided in this table is 1. Non-Marginable debt and marginable debt refers to whether such debt is generally reported on a one-month lag.